Market Attention Surrounding the Current Status and Outlook of the Bitcoin ETF
The crypto asset market continues to expand after last summer due to the speculation over whether a Bitcoin ETF will be approved or not. If positive news comes out for a Bitcoin ETF, the Bitcoin price will respond with a rise and if negative news comes out the price should fall.
Why does this Bitcoin ETF affect the market price so much?
In this article, with regards to the Bitcoin ETF that the market is paying attention to, we will outline (1) an ETF, (2) the Bitcoin ETF, (3) the reason why the Bitcoin ETF is attracting attention, and (4) the prospect of approval time.
What even is an ETF?
ETF is an abbreviation for “Exchange-Trade Fund,” which is called “listed investment trust” in Japanese. Similar to a mutual fund, an investment company invests “money” collected from investors in stocks, bonds, etc., and it is one of the financial products that provides investment returns to investors.
In general, mutual funds sold by financial institutions (banks, securities companies, etc.) become unlisted “mutual funds,” so buying and selling can only be done once a day at a base price calculated after the market closes. For example, if the market price declines, even if you plan to sell your investment trust immediately, you cannot sell it at spot and must wait until the market closes. This is a clear disadvantage in terms of liquidity.
Meanwhile, since the ETF is a “mutual fund” listed on the exchange, it is almost as if trading at any time during exchange open hours similar to how “one issue” on the stock market is issued. In place of the previous example, if you think that the market price will go down, you can just sell it at spot and you can buy it at spot if you think it will go up. This is the biggest advantage with ETFs.
What is a Bitcoin ETF?
Whether it is an unlisted one or a listed one, mutual funds are often packaged and generally sold with multiple brands included. An example would be an index-linked mutual fund (index fund) that packages 225 issues constituting the Nikkei average and selling it as one product.
However, the Bitcoin ETF* currently applying for approval by the SEC (Securities and Exchange Commission) is a product design that works only with one real Bitcoin. If you think of existing products, it is very similar to the gold index ETF that trust banks keep gold goods, linking gold to the metal price.
* The Bitcoin ETF, which is currently said to be the most likely to be approved for listing, is a partnership between Van Eck and Solid X with the CBOE (Chicago · Optional Exchange). It is an ETF trying to be listed.
For this reason, after the gold index ETF listing in 2003, it is analogous to the fact that the cash spot price “soared;” and so if the Bitcoin ETF were to be listed, can we expect the Bitcoin price will also soar?? Expectations of this are certainly not lacking.
In the future, it is fully conceivable that there will be ETFs that package multiple coins of cryptocurrency (e.g. Bitcoin plus high market capitalization coins such as Ethereum and Ripple).
Why are Bitcoin ETFs gaining attention?
The reason why Bitcoin ETFs are attracting a great deal of attention in the market is that the ETF’s listing approval is expected to encourage entry of major players such as institutional investors. If major players enter the Bitcoin market, recognition of Bitcoin will increase with expectations of a price boost to Bitcoin through improved liquidity.
So how can you attract institutional investors if a Bitcoin ETF is listed? The author has arranged the reasons from the following four viewpoints.
1. High transparency
Because the coins (Bitcoin) and quantities (25 BTC etc. per fund share) that are incorporated in an ETF are determined in advance, transparency is high and the price movements are always visible based on market supply and demand.
2. High liquidity
As ETFs are positioned as “one issue” listed on the market, it is possible to sell and buy any number of times during the day in the same way as individual stocks; the more trading participants, the more liquidity is increased.
3. Reduction in custody fees
Bitcoin is always subject to hacking and loss risk. The larger the amount held, the greater the cost of storage and management becomes. However with a Bitcoin ETF, there is no need to own the actual thing in the first place, so it will be relieved from such stresses with hacking and you will be able to concentrate on trading only.
4. Improved reliability as an asset class
It is hard to imagine that institutional investors such as banks, financial institutions, life insurance companies, etc. will buy and sell Bitcoin through cryptocurrency exchange companies, but as long as it is a listed “ETF,” it becomes legal to buy and its reliability would increase. Thus, there is a possibility that hesitancy to trade Bitcoin and other cryptocurrencies would diminish.
Through the four reasons mentioned above, it is expected that giant corporate players will globally enter the cryptocurrency market.
Prospects for Approval Time of a Bitcoin ETF
Interest in cryptocurrencies is gathered to see whether Van Eck and Solid X’s Bitcoin ETF can list on the CBOE. For Bitcoin ETFs, which are now famous due to the Winklevoss brothers’ ETF application rejection, the SEC has released reasons for rejection and has invited opinions from experts.
Among the reasons for the rejection, what the SEC worries about most is the point of “investor protection.” The risk of individual investors who have limited assets being taken advantage of is regarded as a problem, because immature cryptocurrencies are still not readily priced due to intense price fluctuation when large transactions occur.
However, this problem suggests that liquidity with cryptocurrency will be increased due to the listing of a Bitcoin ETF and the room for price manipulation will be reduced. Thus, it is often said this is similar to a chicken and egg relationship.
If the arbitrage function works sufficiently solving the “single value discrepancy” problem, the cryptocurrency market could expect to move in a direction towards a “single price” market like the current traditional exchange market.
Robert J Jackson Jr., one of the members who passes and votes within the SEC, said in an interview recently that a “Bitcoin ETF will eventually be approved someday.” Then Hester M. Peirce, one of the known as the ‘Crypto mama,’ also showed a positive attitude towards an ETF approval when working with Mr. Jackson.
Regarding the Van Eck and Solid X Bitcoin ETF (listing on CBOE), which is regarded as the most promising candidate at the moment, the SEC side announced recruiting for public opinions on February 13th.
The SEC’s approval schedule has a 45-day review period based on the initial application release date (*), and if it cannot be decided on within 45 days, up to three extensions can been granted. The 1st extension is up to 45 days, the 2nd extension is up to 90 days, and the 3rd extension is up to 60 days, adding up to an examination period of 240 days.
※ The application release date will be the day registration was submitted on the website. Last time it was published on June 26, 2018 and was registered on July 2, 2018 six days later.
Although we have not decided the application release date at the present moment, assuming that it will be announced on February 19th (Tue) six days after the publication date (February 13, 2019) as before, the approval proposal is as follows:
Prerequisite: When the release date becomes February 19, 2019
Initial examination deadline: around April 5, 2019 (speculated)
Defer period 1st time deadline: around May 20, 2019 (estimated)
Defer period 2nd time deadline: around August 18, 2019 (speculated)
Defer period third time deadline: around October 17, 2019 (speculated)
I do not know if approval will be given, but if a Bitcoin ETF manages to reach listing by the end of 2019, there is a good chance it will become a detonator for cryptocurrencies. I can’t wait!